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CIR vs. The Stanley Works Sales (Phils.), Inc., G.R. No. 187589. Dec 3, 2014
CIR vs. The Stanley Works Sales (Phils.), Inc., G.R. No. 187589. Dec 3, 2014
280
FIRST DIVISION
[ G.R. No. 187589. December 03, 2014 ]
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS.
THE STANLEY WORKS SALES (PHILS.), INCORPORATED,
RESPONDENT.
DECISION
SERENO, C.J.:
THE FACTS
Petitioner is the duly appointed officer of the Bureau of Internal Revenue (BIR)
mandated to exercise the powers and perform the duties of his office including,
among others, the power to decide disputed assessments, refunds of internal
revenue taxes, fees and other charges, penalties imposed in relation thereto, or
other matters arising under the National Internal Revenue Code. Respondent, on
the other hand, is a domestic corporation duly organized and existing under
Philippine laws and duly registered with the Securities and Exchange Commission.
Its office address is at the 5th Floor, Pan Pacific Hotel, Adriatico Street corner Gen.
Malvar Street, Manila.
On April 16, 1990, respondent filed with the BIR its Annual Income Tax Return for
taxable year 1989.
On March 19, 1993, pursuant to Letter of Authority dated July 3, 1992, the BIR
issued against respondent a Pre-Assessment Notice (PAN) No. 002523 for 1989
deficiency income tax.
On April 12, 1993, petitioner, through OTC Domingo C. Paz of Revenue Region No.
4B-2 of Makati, issued to respondent Assessment Notice No. 002523-89-6014 for
deficiency income tax for taxable year 1989. The Notice was sent on April 15, 1993
and respondent received it on April 21, 1993.
On May 19, 1993, respondent, through its external auditors Punongbayan &
Araullo, filed a protest letter and requested reconsideration and cancellation of the
assessment.
On November 16, 1993, a certain Mr. John Ang, on behalf of respondent, executed
a “Waiver of the Defense of Prescription Under the Statute of Limitations of the
National Internal Revenue Code” (Waiver). Under the terms of the Waiver,
respondent waived its right to raise the defense of prescription under Section 223
of the NIRC of 1977 insofar as the assessment and collection of any deficiency
taxes for the year ended December 31, 1989, but not after June 30, 1994. The
Waiver was not signed by petitioner or any of his authorized representatives and
did not state the date of acceptance as prescribed under Revenue Memorandum
Order No. 20-90. Respondent did not execute any other Waiver or similar document
before or after the expiration of the November 16, 1993 Waiver on June 30, 1994.
On September 30, 1994, respondent, through its external auditors Punongbayan &
Araullo, submitted a Supplemental Memorandum on its protest to the BIR Revenue
Region No. 4B-2.
On September 20, 1995, respondent, through its external auditors Punongbayan &
Araullo, filed a Supplemental Memorandum with the BIR Appellate Division.
On November 29, 2001, the Chief of the BIR Appellate Division sent a letter to
respondent requiring it to submit duly authenticated financial statements for the
worldwide operations of Stanley Works and a sworn declaration from the home
office on the allocated share of respondent as a “branch office.”
On December 11, 2001, respondent, through its counsel, the Quisumbing Torres
Law Offices, wrote the BIR Appellate Division and asked for an extension of period
within which to comply with the request for submission of documents. On January
15, 2002, respondent sent a request for an extension of period to submit a
Supplemental Memorandum.
On March 4, 2002, respondent, through its counsel, the Quisumbing Torres Law
Offices, submitted a Supplemental Memorandum alleging, inter alia, that
petitioner's right to collect the alleged deficiency income tax has prescribed.
IN VIEW WHEREOF, this Office resolves, as it hereby resolves, to DENY the request
for reconsideration of STANLEY WORK SALES (Philippines), INC. dated May 19,
1993 of Assessment No. 002523-89-6014 dated April 12, 1993 issued by this
Bureau demanding payment of the total amount of Php41,284,968.34 as deficiency
income tax for taxable year 1989. Consequently, Stanley Works Sales (Philippines),
Inc. is hereby ordered to pay the above-stated amount plus interest that may have
accrued thereon to the Collection Service, within thirty (30) days from receipt
hereof, otherwise, collection will be effected through the summary remedies
provided by law.
After trial on the merits, the CTA First Division found that although the assessment
was made within the prescribed period, the period within which petitioner may
collect deficiency income taxes had already lapsed. Accordingly, the court cancelled
Assessment Notice No. 002523-89-6014 dated 12 April 1993.
The CTA Division ruled that the request for reconsideration did not suspend the
running of the prescriptive period to collect deficiency income tax. There was no
valid waiver of the statute of limitations, as the following infirmities were found: (1)
there was no conformity, either by respondent or his duly authorized
representative; (2) there was no date of acceptance to show that both parties had
agreed on the Waiver before the expiration of the prescriptive period; and (3) there
was no proof that respondent was furnished a copy of the Waiver. Applying
jurisprudence and relevant BIR rulings, the waiver was considered defective; thus,
the period for collection of deficiency income tax had already prescribed.
THE CTA EN BANC RULING [5]
The CTA En Banc affirmed the CTA First Division Decision dated 6 May 2008 and
Resolution dated 14 July 2008. The Waiver executed by respondent on 16
November 1993 could not be used by petitioner as a basis for extending the period
of assessment and collection, as there was no evidence that the latter had acted
upon the waiver. Hence, the unilateral act of respondent in executing said
document did not produce any effect on the prescriptive period for the assessment
and collection of its deficiency tax. As to the issue of estoppel, the court ruled that
this measure could not be used against respondent, as it was petitioner who had
failed to act within the prescribed period on the protest asking for a reconsideration
of the assessment.
ISSUES
Whether or not petitioner’s right to collect the deficiency income tax of respondent
for taxable year 1989 has prescribed.
Petitioner mainly argues that in view of respondent’s execution of the Waiver of the
statute of limitations, the period to collect the assessed deficiency income taxes has
not yet prescribed.
The resolution of the main issue requires a factual determination of the proper
execution of the Waiver. The CTA Division has already made a factual finding on the
infirmities of the Waiver executed by respondent on 16 November 1993. The Court
found that the following requisites were absent:
(2) Date of acceptance showing that both parties had agreed on the Waiver before
the expiration of the prescriptive period; and
(3) Proof that respondent was furnished a copy of the Waiver. [7]
We do not agree.
The statute of limitations on the right to assess and collect a tax means that once
the period established by law for the assessment and collection of taxes has
lapsed, the government’s corresponding right to enforce that action is barred by
provision of law.
The period to assess and collect deficiency taxes may be extended only upon a
written agreement between the CIR and the taxpayer prior to the expiration of the
three-year prescribed period in accordance with Section 222 (b) of the NIRC. In
relation to the implementation of this provision, the CIR issued Revenue
Memorandum Order (RMO) No. 20-90[10] on 4 April 1990 to provide guidelines on
the proper execution of the Waiver of the Statute of Limitations. In the execution
of this waiver, the following procedures should be followed:
1. The waiver must be in the form identified hereof. This form may be reproduced
by the Office concerned but there should be no deviation from such form. The
phrase “but not after __________ 19___” should be filled up x x x
2. x x x x
Soon after the waiver is signed by the taxpayer, the Commissioner of Internal
Revenue or the revenue official authorized by him, as hereinafter provided, shall
sign the waiver indicating that the Bureau has accepted and agreed to the waiver.
The date of such acceptance by the Bureau should be indicated. x x x.
xxxx
1. The Revenue District Officer with respect to tax cases still pending investigation
and the period to assess is about to prescribe regardless of amount.
xxxx
5. The foregoing procedures shall be strictly followed. Any revenue official found not
to have complied with this Order resulting in prescription of the right to
assess/collect shall be administratively dealt with.
Furthermore, jurisprudence is replete with requisites of a valid waiver:
1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase
“but not after ______ 19 ___”, which indicates the expiry date of the period agreed
upon to assess/collect the tax after the regular three-year period of prescription,
should be filled up.
2. The waiver must be signed by the taxpayer himself or his duly authorized
representative. In the case of a corporation, the waiver must be signed by any of
its responsible officials. In case the authority is delegated by the taxpayer to a
representative, such delegation should be in writing and duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver indicating
that the BIR has accepted and agreed to the waiver. The date of such acceptance
by the BIR should be indicated. However, before signing the waiver, the CIR or the
revenue official authorized by him must make sure that the waiver is in the
prescribed form, duly notarized, and executed by the taxpayer or his duly
authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau
should be before the expiration of the period of prescription or before the lapse of
the period agreed upon in case a subsequent agreement is executed.
6. The waiver must be executed in three copies, the original copy to be attached to
the docket of the case, the second copy for the taxpayer and the third copy for the
Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy
must be indicated in the original copy to show that the taxpayer was notified of the
acceptance of the BIR and the perfection of the agreement. [11]
To emphasize, the Waiver was not a unilateral act of the taxpayer; hence, the BIR
must act on it, either by conforming to or by disagreeing with the extension. A
waiver of the statute of limitations, whether on assessment or collection, should not
be construed as a waiver of the right to invoke the defense of prescription but,
rather, an agreement between the taxpayer and the BIR to extend the period to a
date certain, within which the latter could still assess or collect taxes due. The
waiver does not imply that the taxpayer relinquishes the right to invoke prescription
unequivocally.[15]
The provision of law on prescription was adopted in our statute books upon
recommendation of the tax commissioner of the Philippines which declares:
Under the former law, the right of the Government to collect the tax does not
prescribe. However, in fairness to the taxpayer, the Government should be
estopped from collecting the tax where it failed to make the necessary investigation
and assessment within 5 years after the filing of the return and where it failed to
collect the tax within 5 years from the date of assessment thereof. Just as the
government is interested in the stability of its collection, so also are the taxpayers
entitled to an assurance that they will not be subjected to further investigation for
tax purposes after the expiration of a reasonable period of time. (Vol. II, Report of
the Tax Commission of the Philippines, pp. 321-322)
The law prescribing a limitation of actions for the collection of the income tax is
beneficial both to the Government and to its citizens; to the Government because
tax officers would be obliged to act promptly in the making of assessment, and to
citizens because after the lapse of the period of prescription citizens would have a
feeling of security against unscrupulous tax agents who will always find an excuse
to inspect the books of taxpayers, not to determine the latter's real liability, but to
take advantage of every opportunity to molest peaceful, law-abiding citizens.
Without such legal defense taxpayers would furthermore be under obligation to
always keep their books and keep them open for inspection subject to harassment
by unscrupulous tax agents. The law on prescription being a remedial measure
should be interpreted in a way conducive to bringing about the beneficient purpose
of affording protection to the taxpayer within the contemplation of the Commission
which recommends the approval of the law.[16]
Anent the second issue, we do not agree with petitioner that respondent is now
barred from setting up the defense of prescription by arguing that the repeated
requests and positive acts of the latter constituted estoppels, as these were
attempts to persuade the CIR to delay the collection of respondent’s deficiency
income tax.
True, respondent filed a Protest and asked for a reconsideration and cancellation of
the assessment on 19 May 1993; however, it is uncontested that petitioner failed to
act on that Protest until 29 November 2001, when the latter required the
submission of other supporting documents. In fact, the Protest was denied only on
22 March 2004.
Since the Waiver in this case is defective and therefore invalid, it produces no
effect; thus, the prescriptive period for collecting deficiency income tax for taxable
year 1989 was never suspended or tolled. Consequently, the right to enforce
collection based on Assessment Notice No. 002523-89-6014 has already prescribed.
SO ORDERED.
[2]
Id. at 30-49; penned by Associate Justice Erlinda P. Uy and concurred in by then
Presiding Justice Ernesto D. Acosta, Associate Justices Juanito C. Castañeda Jr.,
Lovell R. Bautista, Caesar A. Casanova, and Olga Palanca-Enriquez.
[3]
Id. at 50-51.
[4]
https://docs.google.com/viewer?url=http://cta.judiciary.gov.ph/home/
download/b44b105b6015df0060c08414b6532e67 (visited 14 May 2014), penned by
Associate Justice Lovell R. Bautista and concurred in by then Presiding Justice
Ernesto D. Acosta and Associate Justice Caesar A. Casanova.
[5]
Supra note 2.
[6]
Rollo, pp. 16-17; Petition for Review on Certiorari, pp. 9-10.
[7]
Supra note 4.
[8]
510 Phil. 1 (2005).
[9]
Rollo, p.19.
[10]
SUBJECT: Proper Execution of the Waiver of the Statute of Limitations under the
National Internal Revenue Code.
[11]
CIR v. Kudos Metal Corporation, G.R. No. 178087, 5 May 2010, 620 SCRA 232,
243-244, citing Philippine Journalists, Inc. v. Commissioner of Internal
Revenue, 488 Phil. 218, 235 (2004).
[12]
488 Phil. 218 (2004).
[13]
SUBJECT: Salient Features of Supreme Court Decision on Waiver of the Statute
of Limitations under the Tax Code, issued on 2 February 2005.
[14]
SUBJECT: Waiver of the Defense of Prescription under the Statute of Limitations,
issued on 29 June 2012.
[15]
BPI v. CIR, supra note 8.
[16]
Republic of the Philippines v. Ablaza, 108 Phil. 1105,1108 (1960).
[17]
104 Phil 819 (1958).
[18]
Supra note 8.
[19]
Id.
[20]
Philippine Journalist, Inc. v. Commissioner of Internal Revenue, supra note 12.
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